DNA methylation plays an important role during embryonal development. Early steps of development can be in part recapitulated using embryonal stem cells in culture. A key feature of embryonic stem cell differentiation into somatic cells is the silencing of stem cell specific genes some of which are crucial for maintenance of pluripotency (e.g. Oct4). DNA methylation is thought to play a key role in this process by influencing chromatin structure and thus contributing to gene silencing. DNA methylation level at the Oct4 promoter is acquired during early development and closely associated with transcriptional repression. Since we had previously found that Lsh is involved in de novo methylation of retroviral sequences, and furthermore that Lsh is critical for recruitment of Dnmts at specific genomic locations we hypothesize that Lsh could be involved in transcriptional silencing of stem cell specific genes during embryonic differentiation. Using embryonic stem cells in culture we examined whether CpG methylation is a general epigenetic mark that is acquired at silenced stem cell genes during differentiation, Furthermore we addressed the question whether Lsh is involved in stem cell gene silencing and in addition, whether Lsh plays a role in maintenance of the stem cell phenotype. Upon in vitro differentiation of embryonic stem cells more than 20 stem cell specific genes were transcriptional repressed as measured by RT-PCR or Real-time PCR analysis. Southern analysis and methylation sensitive PCR analysis confirmed acquisition of DNA methylation at the Oct4 promoter during in vitro differentiation, as had been reported by others. Using MeDIP analysis (immunoprecipitation of genomic DNA with an anti-methyl-cytosine antibody) we found methylation gains for all but one (10 out of 11) examined genes (Oct4, Nanog, Dppa2, Dppa3, Dppa4, Dppa5, Fbx15, Gdf3, Ndp52, and Tdgf1). Housekeeping genes (7 altogether) and neuronal lineage specific genes (Nestin, Mash1) served as negative controls and were not methylated, whereas repeat sequences (minor, major satellites and IAP) and genomic imprinted sites (DMRs of Igf2R, H19 and KVDMR1) stayed methylated during differentiation. This suggested that DNA methylation serves as a common epigenetic mark of silenced stem cell genes. To evaluate the role of Lsh in DNA methylation of stem cell genes, Lsh was short-term depleted in culture by applying siRNA oligonucleotides directed against Lsh. Reduction of Lsh inhibited gene silencing and resulted in partial expression of stem cell genes after differentiation. Moreover, Lsh depleted cells were able to maintain stem cell properties (such as clonal growth, anchorage independent growth and alkaline phosphatase (AP) expression). This suggested that Lsh depleted cells could in part escape the gene silencing program. MeDIP analysis revealed that DNA methylation at stem cell genes was not obtained in Lsh depleted stem cells. ChIPs analysis showed that Lsh was required for stable association of Dnmt3b to its genomic target. Thus Lsh participates at de novo methylation of stem cell genes in vitro. In addition, Lsh-/- embryos from day 8.5 gestation showed perturbed Oct4 repression in comparison with wild type embryos. Bisulphite sequencing analysis of the Oct4 promoter region in DNA derived from Lsh-/- embryos showed a greatly reduced methylation level (15%) in comparison with wild type samples (66%). These results indicated that Lsh is also involved in de novo methylation of Oct4 methylation in vivo. In summary, transcriptional control of stem cell genes is a critical step in differentiation of embryonic stem cells and in reprogramming of somatic cells into stem cells. We found that Lsh, a regulator of repressive chromatin at retrotransposons also plays an important role in transcriptional silencing of stem cell specific genes such as Oct4. Lsh is critical for setting DNA methylation pattern at stem cell genes, in part by controlling the association of Dnmt3b with its genomic target sites. Moreover, Lsh depletion in ES cells promotes the maintenance of stem cell characteristics in culture. Our results indicate that Lsh plays a role in de novo methylation of stem cell genes and suggests that Lsh is an important epigenetic modulator during early stem cell differentiation and may play a role in nuclear reprogramming.